He was speaking in the aftermath of separate court cases last Friday, which saw two men suffering from psychiatric illness convicted of killings.
However, Mr Dorrell, who 10 days ago announced plans for a new charter for the mentally-ill, said he saw no need for radical change.
Critics claim thousands of patients are being discharged into the community as hospitals close due to government health policy, but they face inadequate help from local councils and social services.
"They are unsatisfactory in a number of different areas for reasons that have been reasonably well-documented in the inquiries that have gone on into the homicides caused by mentally-ill people and, more extensively, in the quality of care available to mentally-ill people," he told BBC Radio 4's The World This Weekend.
"It is a great mistake to take individual examples of failure - and there have been too many very tragic examples - and say, therefore, the whole system that deals with tens of thousands of people who suffer from mental illness is damned because of a few failures.
"Our policy is to ensure that those who 30 or 40 years ago were put away in what were human warehouses, but who could perfectly well lead reasonably normal lives in the community with support ... should be given a better chance.
"It is obviously equally true that those who need acute hospital care should have it."
Mr Dorrell said the Government was on target to greatly increase the number of beds in "medium secure" units and rejected claims that old-style hospitals were being closed at random without being replaced.
Last week, former mental patient Wayne Hutchinson, who believed he was a tiger, was found guilty at the Old Bailey of the manslaughter of two people and wounding three others in a six-day rampage after being released from hospital in what police and lawyers privately described as "a blunder".
On the same day, another ex-patient, Martin Mursell, was found guilty of killing his disabled stepfather and seriously injuring his mother in a frenzied knife attack.
His mother had pleaded without success with Islington social services to take her son into care. Inquiries are being held into both cases.Reuse content